Do my student loans get in the way of a mortgage?
December 26, 2023 10:51 PM Subscribe
Will waiting to pay off my student loan debt get in the way of qualifying for a mortgage loan in order to buy a first house?
I'm working towards fulfilling the PSLF Public Service Loan forgiveness program. Supposedly 10 years of payments and I will have no more student loan debt. Otherwise, I would try to pay down the loan more so I would have less debt.
I'm neurodivergent and finances are very hard for me to keep a handle on. So I'm enrolled in the PSLF with an eligible employer. I just have tons more of payments left to reach the forgiveness bar. Barring an apocalypse, consider that I'll be with this employer with a secure job long enough to fulfill the PSLF requirements. Which makes it very hard to not try to get loan forgiveness but maybe someone has gone through this and can tell me how this has gone or has some insight for someone who doesn't have a lot of financial experience.
In the meantime, I'm planning on buying a house One day. Hopefully before 10 years is up.
I'm in the budgeting, researching housebuying and planning stages now. What more should I do to prepare financially or otherwise.
I'm working towards fulfilling the PSLF Public Service Loan forgiveness program. Supposedly 10 years of payments and I will have no more student loan debt. Otherwise, I would try to pay down the loan more so I would have less debt.
I'm neurodivergent and finances are very hard for me to keep a handle on. So I'm enrolled in the PSLF with an eligible employer. I just have tons more of payments left to reach the forgiveness bar. Barring an apocalypse, consider that I'll be with this employer with a secure job long enough to fulfill the PSLF requirements. Which makes it very hard to not try to get loan forgiveness but maybe someone has gone through this and can tell me how this has gone or has some insight for someone who doesn't have a lot of financial experience.
In the meantime, I'm planning on buying a house One day. Hopefully before 10 years is up.
I'm in the budgeting, researching housebuying and planning stages now. What more should I do to prepare financially or otherwise.
Lenders look at your debt-to-income ratio - i.e. the amount of your monthly debt payments (NOT your overall amount of debt) to your gross monthly income (pre-tax income). In general, they want the amount of your monthly debt (including the new mortgage debt and things like your property tax/home insurance/HOA fees) to be less than 41% of your income (ideally less, like 36%).
Lenders care less about the overall amount of your debt, so if you have a manageable payment you're in pretty good shape even if you have a large amount of debt.
To best prepare for buying a house, save as much as you can for a down payment (and future home expenses), don't take on additional debt (e.g. car payment), and take a first-time homebuyers class in your area - they're useful on their own, especially if you're starting from scratch in terms of financial knowledge, and a lot of times these will help you qualify for advantageous loan programs and/or lower-cost housing.
posted by mskyle at 6:14 AM on December 27, 2023 [5 favorites]
Lenders care less about the overall amount of your debt, so if you have a manageable payment you're in pretty good shape even if you have a large amount of debt.
To best prepare for buying a house, save as much as you can for a down payment (and future home expenses), don't take on additional debt (e.g. car payment), and take a first-time homebuyers class in your area - they're useful on their own, especially if you're starting from scratch in terms of financial knowledge, and a lot of times these will help you qualify for advantageous loan programs and/or lower-cost housing.
posted by mskyle at 6:14 AM on December 27, 2023 [5 favorites]
I have a giant heap of student debt, and it didn't affect my husband and I buying our house.
posted by maryellenreads at 7:44 AM on December 27, 2023 [3 favorites]
posted by maryellenreads at 7:44 AM on December 27, 2023 [3 favorites]
I got a mortgage with plsf loans. There was some tax things that I needed to consider as a married person. It was more beneficial for me to file married filing separately for plsf because it made some differences in my monthly payment, but for the mortgage we needed to file jointly for reasons I don't exactly understand for the first year. I think calculation wise and tax wise it ended up being a not a very big difference but it's something the tax oriented people in my life recommended as a good idea. Anyway, it was possible and not much of a hassle overall. My loans were forgiven about 18 months into my mortgage.
posted by AlexiaSky at 8:16 AM on December 27, 2023 [1 favorite]
posted by AlexiaSky at 8:16 AM on December 27, 2023 [1 favorite]
Lenders look at your debt-to-income ratio - i.e. the amount of your monthly debt payments (NOT your overall amount of debt) to your gross monthly income (pre-tax income). In general, they want the amount of your monthly debt (including the new mortgage debt and things like your property tax/home insurance/HOA fees) to be less than 41% of your income (ideally less, like 36%).
Just to be very explicit, that debt includes student loan payments. Presumably you are on some form of income-driven repayment, so those are lower than they might otherwise be (remember to check in and see if the new SAVE program might be an even better option for you!). Lenders will use the actual payments you are making monthly, not what the figure would be if you were on a standard repayment plan.
If you ask me, you should not exceed 30% DTI. I worked on litigation involving the mortgages in the Great Recession and the studies I saw made it clear that 30% is the break point for the average prudent borrower (i.e., one without a very high income). After that, the risk of default climbed sharply.
posted by praemunire at 2:08 PM on December 27, 2023 [2 favorites]
Just to be very explicit, that debt includes student loan payments. Presumably you are on some form of income-driven repayment, so those are lower than they might otherwise be (remember to check in and see if the new SAVE program might be an even better option for you!). Lenders will use the actual payments you are making monthly, not what the figure would be if you were on a standard repayment plan.
If you ask me, you should not exceed 30% DTI. I worked on litigation involving the mortgages in the Great Recession and the studies I saw made it clear that 30% is the break point for the average prudent borrower (i.e., one without a very high income). After that, the risk of default climbed sharply.
posted by praemunire at 2:08 PM on December 27, 2023 [2 favorites]
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posted by 8603 at 11:21 PM on December 26, 2023 [13 favorites]